Section 32

In depth

Section 32 of TILA (HOEPA) covers high-cost mortgages that exceed APR or points-and-fees thresholds set against the average prime offer rate. Section 32 loans face heightened disclosures, mandatory pre-loan counseling, and bans on balloon payments, prepayment penalties, and negative amortization in most cases. Misconception: Section 32 only applies to high-rate refinances; in fact, it can capture seller-financed purchase money loans if rates and fees exceed thresholds. Practically, seller financiers must run the Section 32 test before closing any consumer loan. The thresholds change annually and depend on lien position. Falling under Section 32 sharply restricts deal structure and significantly raises compliance costs. Many seller financiers structure rates and fees to remain just under Section 32 triggers to avoid these requirements.